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April 7, 2005

Poor prelims re-ignite Siebel acquisition speculation

Poor preliminary Q1 results posted by Siebel Systems have fuelled speculation by acquisition-theorists with that the company could be ripening for a take-over.

By CBR Staff Writer

A research note from Goldman, Sachs & Co states that: There will be increasing pressure on management and the board to use its high cash position to repurchase stock. Some shareholders may push management and the board to consider other means to enhance shareholder value, including selling the company.

During the conference call to discuss the Q1 prelims CEO Mike Lawrie said that one of his key objectives was to preserve and improve shareholder value.

There are also reports that shareholders are starting to apply pressure with president of investment bank Providence Capital Herb Denton, who is also known as an activist investor, calling for institutional investors to meet next week to discuss the company’s situation.

He is reported as saying that Siebel is grotesquely overcapitalized and should use some of its $2.2 billion cash pile to repurchase stock in order to boost the company’s value. Get the stock up, then decide whether you think you can fight it out offering a single application against Microsoft, IBM, Oracle and SAP, he said.

This is the second round of acquisition-related speculation already this month. The first few days of April saw activity in Siebel options rise as investors responded to trading floor chatter about a possible takeover. At the time investors were betting on a 10% share price increase by May 10, looking for a price of $10 per share or more. That is a long way off Siebel’s current price, which fell nearly 10% in the aftermath of its prelims to $8.26 per share, compared to a 52-week high of $12.37.

Oracle and IBM are consistently identified as the companies most likely to bid for Siebel if it came to it, despite the fact that Oracle is engrossed in integrating its huge PeopleSoft and smaller Retek acquisitions and buying a major application vendor would represent a major shift in strategy for partner-happy IBM.

SAP AG could be considered as an outsider due to its keen interest in CRM but the company has said it will not acquire just to get market share and its acquisition strategy has been to make smaller buys to gain specific pieces of technology or expertise or to fill in functionality gaps. The reality is that there are few companies who could afford to go after Siebel, who has a market cap of $4.7bn.

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